Just a bit more than four months into his tenure at the helm of Wells Fargo, new CEO Charlie Scharf faced pointed questioning from lawmakers on Capitol Hill about past scandals, the roadmap forward and whether the bank is too big to fail – or even manage.
Scharf appeared Tuesday (March 10) before the House Financial Services Committee, where Chairwoman Maxine Waters, Democrat of California, noted that he was the third Wells chief executive to testify in front of the committee in three-and-a-half years – and that his predecessors (Tim Sloan and John Stumpf) had each resigned soon thereafter.
With a nod toward the “fake account” scandals that have dominated headlines over the past few years, Waters stated it was not clear whether Wells Fargo is “ready to be ‘America’s bank.’”
Waters categorized the bank as a “lawless organization” that opened 3.5 million accounts in customers’ names, costing them $6 million, and charged individuals for auto insurance they didn’t need, leading some people to lose their cars.
In his own remarks, Scharf stated that the settlements struck by the bank with the Department of Justice and the Securities and Exchange Commission, along with the administrative actions taken by the Office of the Comptroller of the Currency against former Wells Fargo employees, show “past failures … these matters describe deeply disturbing conduct” that he termed unacceptable. He said in his testimony that the business model had been flawed.
Scharf noted the recent changes to leadership, with the creation of the new chief operating officer role, where 75 percent of the operating committee being put into place is new to the firm, having joined since the beginning of 2018.
A flatter organizational structure, according to Scharf, “will give me a clearer line of sight” and more direct involvement across the firm, with greater insight into risk control and progress on the regulatory front. He offered his “personal assurance” on progress, but maintained that it will take time.
Lawmakers repeatedly pressed Scharf on a timeframe for more tangible results across compliance and remediation efforts. Chairwoman Waters highlighted the fact that the OCC has pointed to tens of thousands of cases requiring remediation for consumer abuse.
Rep. Nydia Velazquez, Democrat of New York, asked whether the bank would be in compliance with a 2018 consent order from the OCC and the Consumer Financial Protection Bureau (CFPB) tied to mortgage and auto loan practices by the April 30 deadline. Scharf said there was “an enormous amount of resources working on it … I cannot give you a timeframe.”
Efforts to implement widespread fixes, he said, would not be complete till 2021.
Velazquez asked whether there may be “anything else that might be coming to light,” in terms of wrongdoing. “Not that I am aware of,” Scharf replied.
Separately, Rep. Patrick McHenry, Republican of North Carolina, stated that “the failure of Wells Fargo is not the failure of some sort of innovation – it’s the lack of it, lack of adapting to the new marketplace, lack of adhering to existing laws and regulatory order.”
In reference to questions about capitalization, Scharf maintained that the bank is “extremely” well-capitalized and stated that the entire banking system is better capitalized than it was during the financial crisis a decade ago.
The coronavirus was also brought up at the hearing: McHenry asked how the company was addressing the threat. Scharf stated that of roughly 255,000 Wells Fargo employees, about 100,000 are customer-facing, and roughly 62,000 members across the entire workforce were working from home as of yesterday.
In another line of questioning, Rep. Andy Barr, Republican of Kentucky, asked if Scharf, who has a long tenure in senior banking roles, might see Wells as being too big to manage.
“No, I don’t, Congressman,” said Scharf, adding that “I do believe it is possible to manage the company differently, to fulfill the responsibilities that we have.”